Economy Watch: Woe for Retail

It’s been bubbling below the national radar for some time now, but the dispute between employers and longshoremen on the West Coast has the potential to cost retailers–and their landlords–a lot of money this year, and maybe even punish other parts of the economy. Talks on a new contract have been ongoing between the Pacific Maritime Association (PMA), an employer group representing shipping companies, and International Longshore and Warehouse Union (ILWU) for nine months now, and things are ugly. Over the weekend, the PMA stopped the unloading of ships, accusing workers of slowing down deliberately. The union denies engaging in such a slowdown tactic, which has been known in other situations to give labor more bargaining power in negotiations.

Unloading resumed on Monday, but ships are backing up at the ports on the West Coast in any case, and have been for some time. Management has been muttering about the possibility of a massive shutdown of all the 29 ports on the coast, but it isn’t clear whether that’s a genuine possibility or merely a tactic on the part of owners to gain more bargaining power. Even without labor difficulties, the transshipment of goods through West Coast ports has been increasingly problematic recently, with larger container ships than ever plying the Pacific, and a shortage of trailers at the ports.

What does it all mean for major U.S. retailers? Possibly multi-billion-dollar trouble. CNBC, citing a Kurt Salmon analysis, reported this week that congestion at West Coast ports could cost retailers as much as $7 billion this year. For one thing, congestion means a greater scarcity in carrying goods, and with scarcity comes higher costs. But that’s not all. Some goods might not make it to stores at all, or at least in time to be part of optimal sales periods (to take a random example, chocolate before Valentine’s Day). When retailers can’t optimize their inventories, that too costs them money.

A more drastic shutdown of the West Coast ports, as opposed to heightened congestion, would be worse still, and its effects would be felt in other places besides the retail industry. The National Retail Federation and National Association of Manufacturers estimate that a 10-day shutdown would cost the economy $2.1 billion per day. The retailers, for one, are peeved. This week the NRF issued a statement that included the following: “Our message to the ILWU and PMA: Stop holding the supply chain community hostage. Get back to the negotiating table, work with the federal mediator and agree on a new labor contract.”